What’s one tip for ending a business partnership gracefully (or at least, without lawsuits)?
A. Go Back to the Contract
If you had the foresight to create one, consult the partnership agreement or other business documents that detail the structure of the business and how disagreements or severance is handled. While these contracts typically do not cover ever conceivable scenario they can serve as an impartial reference for negotiations.
A. Be Kind and Generous?
Recognize that if a business partnership does not end amicably, it can cause tens of thousands of dollars in legal bills and years of your time and energy to resolve through litigation. Therefore, when in doubt, error on the side of being generous and kind rather than risk litigation by being greedy or spiteful when ending a business relationship.
A. Be as Reasonable as Possible
Be reasonable, and don’t let pride get in the way. Don’t let the past cloud the way you handle the situation. Think about the best way to end it to benefit your company in the future.
A. Get a Prenup!
Though nobody likes to think about, much less plan for, a dissolution, agreeing on an exit plan should be part of the earliest partnership discussions. That way, no matter how heated things get, both you and your partner are protected and forced to abide by terms upon which you agreed when cooler heads prevailed.
– Michael Tolkin, Merchant Exchange
A. Define Mutual Desired Outcomes
Generally, when a business partnership is coming to an end, both parties have their reasons. If you can define a set of mutual desired outcomes and then operate from a place of mutual fairness, you can generally find an amicable resolution to any business partnership that has come to an end.
A. Factor in an Exit Clause
Start every partnership with a solid contract outlining exit plans in advance. Write up a simple understanding with an exit clause built in for each partner. That way, the procedures and expectations are in place if one partner wants to leave to pursue other opportunities. If you are high and dry without one, go back to the contract.
A. Split the Last Check
It costs money to dissolve a company. The legal fees should be divided by the same ownership percentage. Although an exit strategy should have been in writing upon starting the business, some entrepreneurs might not have it. By splitting the costs of dissolving a company, you at least have documentation to show that both parties agreed to end the partnership.
A. Where’s the Right Contract?
Having the right contract in place at the start of the relationship is key. That guards terms of termination (i.e., days notice) and makes clear what happens to the business, the work etc. Those are the things that cause problems in the first place.
A. Always Be Honest
Breaking up is always hard, but it’s infinitely more difficult when there’s money on the line. Sit your partner down and be transparent. Talk about what’s wrong and why you can’t move forward. Offer a plan to make the split work for both of you.
A. The Heat of the Moment
Think before you act. You never want to end a partnership in the heat of the moment. Rather, think things through carefully and plan your approach/case. Saying too little or too much can have negative consequences in the future.
A. Hire an Attorney
Dissolving a partnership can be an emotional roller coaster, so my advice is to remove all emotions from the process. If you have the resources, both parties should hire an attorney the minute it’s decided that it’s needed to dissolve a partnership. This allows both parties to negotiate at arms length, without being slowed down by partner emotions.
A. Find Mutual Advisers to Help
Anytime a relationship is ending, there is a natural tension caused by a lack of trust. As much as possible, bring together mutual advisers to help you work through differences. Friends or mentors whom both parties trust will create a safer environment for discourse, which will help lead to a graceful resolution.
A. Communicate Everything
Communicate a lot. It’s important to clearly communicate your goals and rationale with your partner throughout your entire partnership, much like a marriage. When you have a lot of transparency, you and your partner will know where the other stands, and the end will likely not be a surprise.
A. Set Legally Binding Expectations
Set expectations and make them legally binding upfront. As a startup founder, your equity should vest. Your equity should be based on milestones you’ve reached. This way, if someone doesn’t live up to expectations, there’s no legal or personal claim that can be made.
A. Have an Exit Strategy
Know what consequences ending the partnership will have on the other parties and be prepared with proposed solutions for those affected. Have strategies and alternatives to share with your business partner, so both sides can handle the transition as seamlessly as possible. For example, how you will handle your existing customers? Be prepared with concrete answers.